Gas Prices Surge as Ukraine Peace Hopes Fade

Gas prices in Britain and Europe have risen sharply following the breakdown of talks between President Trump and President Zelensky, casting doubt on the possibility of a peace agreement between Ukraine and Russia. The failed discussions have quashed earlier hopes that Russian gas supplies could return to the market, easing pressure after a harsh winter.

European natural gas prices spiked by as much as 6.7 per cent while British prices, which typically follow European trends, experienced similar increases. By mid-morning, the UK’s benchmark gas price climbed by around 5 per cent, reaching approximately 110p per therm. Before the war in Ukraine, Europe relied on Russia for roughly 40 per cent of its gas imports, but this figure has since plummeted to about 15 per cent due to sanctions and reduced pipeline flows.

Currently, Russian gas is entering Europe primarily through the TurkStream pipeline to Turkey and limited shipments of liquefied natural gas (LNG). A full-scale return of Russian pipeline gas remains unlikely, as many key routes have been shut down, including those running through Ukraine. Some analysts maintain faint optimism that cross-border flows through Ukraine might resume if the conflict ends, although significant political and commercial negotiations would be required to make this a reality.

The British gas market, although lacking direct pipelines to Russia, is closely tied to European markets through pipeline interconnectors and competition for LNG imports. These connections mean that British prices are heavily influenced by developments across the continent.

Gas prices have fluctuated widely over the past year. After declining at the start of 2023 due to warmer weather and reduced consumption, prices soared again by February, reaching 15-month highs, as cold weather drove up demand and depleted storage levels. Today’s price spike adds to ongoing concerns about higher consumer energy bills, with Ofgem already announcing a 6.4 per cent increase to the price cap in April. This will raise the typical annual household energy bill by £111, bringing the average total to £1849 a year.

Hopes for increased Russian LNG supplies were also dampened by tighter European sanctions, which have restricted shipments from key facilities. Russia’s Arctic LNG 2 project, for example, has struggled to access markets due to restrictions. There is some speculation surrounding the potential revival of the Nord Stream 2 pipeline, which was halted after Russia’s invasion. However, any renewed negotiations on this front remain contentious and politically sensitive. British energy markets will continue to face uncertainty as geopolitical tensions linger and alternative sources of supply remain limited in scope.